Building on the previous core courses, this course shows you how to maximize shareholder wealth within a legal and ethical framework. Topics covered include capital budgeting, cost of capital, capital structure, payout policy and the fundamentals of derivative pricing.
Learning Outcomes of Corporate Finance
- Describe the different facets of agency conflicts between managers, shareholders, and debtholders.
- Explain how the goal of shareholder wealth maximization does not necessarily conflict with stakeholder wealth maximization.
- Use the NPV capital budgeting criterion and demonstrate why it is the best criterion.
- Compute a project’s internal rate of return (IRR) and understand its shortcomings as a capital budgeting criterion.
- Compute the Payback Period and understand its drawbacks as a capital budgeting criterion.
- Follow the rules for the correct application of the NPV criterion.
- Assess the consequences of parameter estimation error for capital budgeting decisions.
- Describe the MM Capital Structure Propositions and the guidance they provide to valuing a levered firm.
- Estimate a firm’s appropriate capital structure.
Click Here for Video Transcript
ALLAN EBERHART: Welcome to Corporate Finance, a course designed to equip you to sit at the head of a boardroom table like this. Play your cards right and study hard and you'll be chairing meetings that consider projects worth millions, perhaps even billions of dollars. And what better place to start than at the ballpark.
Behind me is Nationals Park across town from the Georgetown campus, on the banks at Anacostia River. And home to our hopefully World Series bound Washington Nationals. One of the reasons Washingtonians love the Nats is the ballpark. A state of the art facility that opened in 2008.
It's a spectacular place to watch a ballgame. Today's a fairly gray day in April, but tomorrow is the season opener. This year against the Atlanta Braves. The empty street you're seeing now will be filled with families and fans as they walk to the ballgame hoping for a home opener win.
But the building of this ballpark at a cost of nearly $700 million dollars was not without controversy. As a public private partnership, was it worth it for the investors who were, to a large extent, the taxpayers of Washington D.C.? Would it make money for the owners? What were the long term benefits of regenerating this area of D.C., which was somewhat depressed before the arrival of the new park?
That's where corporate finance comes in. Corporate finance helps put hard numbers against different options helping you decide. Because if you asked a fan like me whether the Nats needed a new park, I'd say of course. I couldn't imagine any Nats fan not being excited about bringing a world class park to the nation's capitol. But enthusiasm alone is never a good indicator of whether an idea is going to have a positive NPV.
After all, the newer park can mean higher ticket prices and more expensive beers. And it's worth remembering that many of the most successful ideas might have looked a little crazy at first. A store in your computer before most people had ever heard of the internet. Equally these days, it sometimes feels that the crazier the idea, the more disruptive the invention, the better it is.
So how do you decide? Well you'll find the decision a great deal easier if you can think through your various options in numerical terms. Corporate finance provides the real world tools and techniques to do just this. So let's get started. On your screen in a second are the six units for this course. I think you're going to find this fascinating and useful. I'll see you in unit one.